Author of Collision and Collusion: The Strange Case of Western Aid to
Eastern Europe.

When the Soviet Union abruptly ceased to exist, you described it as a
watershed event. Why?

I think that people felt that if the Berlin Wall could fall and the regimes
of Eastern Europe could collapse, all of a sudden, rather unexpectedly, that
somehow everything else would not be too problematic, that other issues could
be quite easily solved. And there was a seeming coming together of East and
West.

...

There was this euphoria, this triumphalism, this expectation that great
things could happen, and there were brokers on the Eastern side and on the
Western side that were coming together and having these meetings. There was a
great level of excitement and anticipation about what could happen.

When I went into Russia in the early 1990's after having studied the aid
situation in Central Europe, I expected to find similar things. I expected
lots of consultants coming in staying in the five star hotels and enjoying
themselves and then travelling on, and so on.

And, of course, there was a lot of that. Naturally, there would be after
so much isolation between societies. But what I found instead was that the
United States and the West had made a pretty strategic, conscious, clear cut
decision to support a particular group on the Russian side, which came to be
known as the Chubais clan, after Anatoly Chubais, who was their leader.

And we, in the West, particularly the United States, as the leader, had
made a clear choice to support this one group of power brokers, which was
active in politics and economics and the financial sphere. Chubais was a key
aid to Boris Yeltsin in various capacities throughout the decade of the
1990s.

And, so, we in the West, particularly the United States, had decided to
throw our weight and our money by way of hundred of millions of dollars,
particularly in economic aid. And support from the international financial
institutions -- billions of dollars in loans-- decisions were made about them
by this very particular small group of power brokers known as the Chubais
clan.

So, it really was a different aid story that I had observed in Central
Europe and had written about in my book, "Collision and Collusion."
You're referring to them now as the Chubais clan, but once didn't we
refer to them as the young reformers?

Absolutely, this group was identified as the young reformers. They were
seen as enlightened. Many times they were identified as such both by key
officials and pundits and policy makers in the West and also by much of the
Western media.

They were seen as the group that could carry Russia down the bright road to
prosperity and capitalism. And many times they were identified as reformers,
because they spoke English, they wore the right suits. ... They had the right
presence and mannerisms. Most importantly, they knew how to talk to the West.
They parroted the slogans of markets, of democracy, of capitalism, of civil
society. They knew all the right buzz words.

...

What happened was that US policy --Western policy, but with the United
States taking the lead -- chose this group of power brokers and basically gave
them a blank check in the form of hundreds of millions of dollars of US and
Western aid, and we helped to create them. Because the main comparative
advantage that the Chubais clan, the so-called young reformers, had in the
Russian context was their access to hundreds of millions of dollars of Western
aid and key Western pundits, policy makers, decision makers, power brokers.

And, what we did, the US and the West, was ignore many of the key players
on the Russia scene, and instead threw our weight and our money behind this one
group.

That's had some a very dramatic and depressing consequences. First of all,
the whole ideology of what we were was to presumably to support the development
of a market economy. And a key part of that program was privatization. You
have to keep in mind that the assets in the Soviet Union, the resources, were
in the hands of the state. It was a communist country. Virtually everything
was owned by the state. And, so, a key plank for the donors for the West was
to divest the state of the resources and to privatize resources.

But the way in which the Chubais group and the Chubais conducted economic
reform, particularly privatization, backed up by hundreds of millions of
dollars in US aid ... the way in which privatization was conducted was more
about wealth confiscation than wealth creation. It was more about giving
advantages to a very small group of power brokers in Russia.

And the chief beneficiaries of privatization, which has been touted by US
and Western officials as this panacea for economic reform and progress, have
been a very small group of Russian players, often times referred to in the West
as oligarchs.

What has happened is that very few people have profited and built their
homes on the French Riviera and their dachas, and so on. Very few people have
profited while many Russians, if not most, are worse off than they were before
the economic reforms.

So, the economic reforms... were not about economic progress for the most
part. ...Further, the reforms and the aid policies were really anti-democratic.
We encouraged the Russians to operate through decree. The Chubais clan in
their economic reform agenda worked in many cases through decree rather than
working with the parliament.

Harvard University for international development was intimately involved in
the economic reforms and worked closely, very closely with the Chubais clan...
In many cases the Harvard representatives actually wrote decrees to be signed
by Yeltsin. The Harvard University representatives -- funded by the USAID, aid
from international lending institutions, and other Western organizations --
operated as key advisers and key decision makers in the privatization ministry
and in the whole economic reform agenda. So, Harvard University is also
involved in this.

So, what was wrong with this? Well, first of all, it didn't really help to
create a market economy. A market economy is supposed to be about -- as I
understood it --helping to create competition. Instead, in many cases,
monopolies were created and oligarchs were created and people with lots of
money who could then send the money offshore and feather their own nests, line
their own pockets.

It also is anti-democratic. We worked around key market and participants,
not to mention the parliament. Things were done through decree. We didn't
involve the people who should have been involved in many of the market
reforms.

Some things might be able to be done by decree, like lifting price controls
and that sort of thing. But when you get into privatization and economic
restructuring, one of the things that I learned in the many case studies that I
did was that you involve the people who were going to implement the changes.
This whole strategy of working around key market individuals absolutely
failed.

There were also cases that I learned of and that I observed in which these
Chubais-Harvard players actually obstructed market reform, because it hadn't
originated with them and they wanted to control the process.

So, the so-called reforms were really not much about economic reform. They
certainly were not about building democracy. And you have to keep in mind that
democracy, if you go back and look at the statements of the aid officials, was
also a key part of what we said we were doing, market reform democracy.

The most important thing that the West could have done in post-Soviet
Russia, is to try to encourage the development of a legal and a regulatory
framework. That would provide the basis for everything: property rights, the
sanctity of contracts, third party dispute settlement, legal and regulatory
framework. This was key. But by giving one group, the Chubais clan, a blank
check, we encouraged precisely the opposite of the development
of a legal and regulatory framework.
Voucher privatization -- what was our role in that
privatization?

Well, the United States funded and helped to develop the concept of voucher
privatization. This was a key plank in the US economic aid strategy to Russia.
Economic reform at the very beginning was largely about privatization. And
voucher privatization was the first privatization that was undertaken beginning
in 1993 for a few years onward.

The forerunner of the Duma, the Supreme Soviet, the communist body, had
actually mandated privatization in 1991. So, it isn't true what was often
presented in the West by the so-called young reformers and their supporters
here -- that the parliament, the Supreme Soviet, and later the Duma, didn't
want privatization. They did want privatization and that's very clear in the
decisions that were made.

However, the program that Chubais and company devised and implemented --
with the help of the Harvard Institute for International Development and the
funding of USAID, US Agency for International Development--provided for a lot
of corruption. And the Duma, the elected Russian parliament, saw that that
would be the case. They foresaw that these reforms would lead to a lot of
corruption. Therefore, they opposed the particular plan that Chubais
implemented; however, they were not generally speaking opposed to
privatization.

And what happened? What happened was precisely what they had feared, which
was that voucher privatization led to massive amounts of corruption. People
sold their vouchers, they quickly got into the hands of very few people and it
was a massive corrupt undertaking. And this is precisely what the Duma wanted
to avoid.
And we were funding the selling of privatization to a fairly skeptical
public?

That's right. Not only were we involved in funding the design and the
implementation of privatization, we also got involved in what was called
'public education campaigns' which essentially meant attempting to sell it to a
population that was somewhat, if not, largely skeptical about what would be
those results.

The US economic aid hired public relations firms to do this work. And I
remember talking with the consultants who had been involved in these so-called
public education campaigns and I remember one of them telling me that they
would go into factories and try to get privatization success stories. Because
they would film these stories and then they would put these stories on
television. But they had a hard time getting privatization success stories.
And she said in some of the factories that the people that she was interviewing
didn't even know that the factory had been privatized.
So, US money and US consultants were running the PR campaign for the
Chubais clan, the young reformers?

That's right. Now, I'm sure that they had their own efforts under way as
well. But, yes, US taxpayer monies were funding the public relations efforts
to sell the voucher privatization. There's no question about that.

And one of my main criticisms of this whole policy of giving essentially a
blank check to one group is not only that it has encouraged corruption in
myriad ways, but also that it was political aid under the guise of economic
aid.

Not only did this strategy not help Russia, did not encourage the
development of a market economy, did not encourage the development of a
democratic system; it also encouraged a backlash effect against the United
States.

Many Russians now are worse off than they were ten years ago. Worse off
than before these so-called economic reforms. What image do you think they have
then of economic reform when markets and reform are equated with massive
corruption? And a very few people making off like bandits and most everyone
else falling by the wayside.

Many Russians now believe that the United States deliberately set out to
destroy their economy. And I've heard this from lots of, shall I say,
enlightened, very educated, intellectual Russians that somehow this whole
destruction of Russia was a US strategy from the very beginning...
Which is another huge change over the last decade?

Absolutely. You know, ten years ago, eight years ago, even five years ago
the United States enjoyed so much public support. People were so enamored of
America and the United States -- and some of that, of course, was bound to
change.

But this tremendous animosity towards America as such and even towards
individual Americans is really striking and I think very disturbing. And very
different from a case like Poland where I've spent many years. The economic
reforms there have not been entirely successful, but there isn't this
perception that the United States came and really screwed us up.

Russia is a striking example of, I'm afraid, very bad policy. Which is
clearly going to haunt us for many years to come. This is not going to go
away.

So, a last question on the US funded public relations campaign for
privatization. You have evidence that it very clearly crossed a line from
selling privatization into political campaigns in Russia

Well, during the 1993 Presidential campaign, first of all, the so-called
public education effort funded by US taxpayer dollars was putting key so-called
economic reformers on TV among other things. So, you had Chubais, you had the
economic players who were intimately involved in politics, of course, as well.
So that's one part of it.

So, the public education campaign was involved in promoting the so-called
economic reformers and putting them on TV and airing them on television and
putting out information tracts about their activities, and so on. It was
involved in promoting these people who were intimately involved in politics,
specifically the 1993 parliamentary election.

The point is that the United States was intimately involved in this public
education effort and in funding the public education effort. And many of the
players who were involved in the so-called economic reforms were also involved
in politics. So, in promoting this group of young reformers, so-called, we
also were promoting their particular political activities.

In the parliamentary election of 1993, there was a slogan that was put out
by the PR firm that was funded by US taxpayer dollars, "your voucher, your
choice". And that was changed to, "your choice, Russia's choice". Russia's
choice, of course, was the name of a political party.

So, here, again, is an explicit example of the United States promoting a
political agenda, even a political party in this instance. So, here, again, we
have political aid under the guise of economic aid. Which is familiar to
Russians who were raised under communism, because in many respects the essence
of communism was that you had economic decisions made in the political realm.
You had politicians, communist officials, making economic decisions.
So, not necessary looking a whole lot like democracy?

No, I'm afraid not. I'm afraid that this sent the message to Russians that
the United States doesn't really care about democracy. Instead it cares about
certain policies promoting certain policies.
One of the other people that I've talked to who was in the US government
at the time said that in December 1993, the so-called reformers, that party,
Russia's Choice, was defeated. They won much less than had been hoped for;
that that was areferendum on economic reforms as much as anything else.
Following that defeat, US advisors sat down with Yeltsin's team and essentially
said let's set up a parallel power structure, begin to rule by decree. If it's
not going to be democratic, just rule by decree. Does that thesis fit your
research?

Absolutely. I found a very similar thing in the economic sphere that what
happened was that there was a perception that the parliament was retrograde.
There are communists there. We're not going to deal with them. We're going to
bypass the parliament, we're going to bypass democratic processes. We're going
to even bypass key institutions of the state and of the bureaucracy.

And this is another thing that I found in my research: that US economic
aid, and many other Western donors and the international financial
institutions, set up a whole series of organizations that were meant to
supplant the state institutions and really to override them.

They had more authority in some cases than the state institutions. And,
yet, they were formally private. So, what happened was there was a kind of
parallel executive structure made up of the Harvard/Chubais people that made
decisions on behalf of the Russian state and on behalf of US policy that really
circumvented and bypassed other key players and clearly democratic processes.
This was anti-democratic. And this parallel executive was involved in
negotiating loans on behalf of Russia with the international financial
institutions. It was involved in signing off on loans and accepting billions
of dollars in aid. It was involved in making decisions that had a key impact on
the lives of millions of Russians. It was involved in making US policy at the
highest levels. And, yet, it was bypassing the main players and the main
institutions of the state.
How do you explain this--we just thought we knew better than anyone
else?

Well, I think clearly that there was a lot of ignorance involved in what
reform was really about and what reforming a system that had come from 70 years
of communism would take, and that you had to involve institutions. That
reforms were by definition were political. That it wasn't just a technical,
neutral endeavor, that you had to really involve the whole spectrum of players
of people of market, participants of legislatures, etc.

There wasn't that realization. And in some respects one shouldn't have
expected there to be that realization, because these were new phenomena -- how
to reform a post-communist system.

On the other hand, some of the ignorance was understandable. However, what
was, I think, not understandable and not excusable was the sheer arrogance and
the hubris with which many of these advisors entered the scene and said we have
the answers. We know what to do. And they came with their cliches and tried
to sell people on both sides of the Atlantic on these cliches and on the idea
that they had the answers.

So the ignorance was understandable, but I think when you're ignorant and
then you combine that with unbelievable self-confidence, which has no basis in
experience or reality, then one really is entering into the arena of
charlatanism, of being charlatans. And I'm afraid that's what some of people
were doing.
Do you agree with the allegations that many people have made that we, in
the United States, played a role in creating the oligarchy?

Well, clearly the United States played an intimate role in helping to
design and implement and sell privatization policies, particular voucher
privatization, but not only.

Privatization was a key instrument in shaping the Russian economic
landscape, who got what. And under the privatization scheme, known as loans for
shares, this is when a handful of oligarchs, acquired many of Russia's gem
industries at fire sale prices.

It was the voucher privatization early on, again designed, implemented and
sold by the United States, which set the scene for the later privatization
which was even more corrupt.

I think that, unfortunately, if you look at the record of privatization and
US involvement in it, I'm not sure how we can absolve ourselves of
responsibility. We were intimately involved, and the US-paid Harvard advisors
were sitting in the Ministry of Privatization and the Russia privatization
center designing, creating, implementing these policies.

And the main Harvard advisor was one of a very few people who was allowed
to sign off on high-level privatization decisions on behalf of the Russian
state -- here you have an American official representing the United States
who's signing on behalf of the Russian state.
After the August 1998 crash, President Clinton went to Russia for a
summit in September 1998. Among other things, he continued to lecture the
Russians that they had to stick to the path of reform. What do you imagine
would have been the reaction of Russians hearing this lecture?

Well, here is a people whose standard of living has already gone way down
under the so-called economic reforms, whose life spans, particularly men, have
gone down during the same period, where infant mortality is a real and growing
problem, where there are huge health crises, where the budget is in crisis,
where education is becoming problematic, education which was always a strength
of Russia, of the Soviet Union.

And here they're being told to stick to this disastrous course. I can't
imagine how that would feel. It's like being run over by a truck and you're
told just to stay on the road. It seems to me to have been a disastrous public
relations strategy.
What is wrong with what we were told in the '93 elections and the '96
elections--that it was either the reformers or the communists--that was the
choice?

It's very interesting the way in which the media and the policy makers
portrayed this. It was portrayed as a struggle between the enlightened,
bright, nice-looking, educated reformers and everybody else who was communist,
retrograde, old school.

And that's unfortunately not at all the case. In this so-called group of
young reformers, you have communists. In fact, there were many different groups
who were involved in reform and who were forward-looking and who wanted to
institute reasonable economic reforms.

As I said, even the Supreme Soviet was in favor of privatization and
they're really on the communist side of things. So, this was a dichotomy that
was really for American and Western consumption, that was bought and sold by
the West, but really bore very little resemblance to the realities of the
complex political Russian landscape.